Amazon shores up logistics in China as its global delivery business

Amazon is expanding its logistics services into mainland China and other major shipping hubs to reduce logistics costs as it seeks to expand into the cross-border e-commerce market.

This would see it take on domestic market leader Alibaba Group in the global cross-border e-commerce market, which is projected to reach US$1 trillion by 2020, according to data supplied by Accenture and AliResearch.

However, its ambitions may be grander yet. One rumour doing the rounds this month maintains that Amazon has even begun leasing planes – under the radar, so to speak – to further its ambitions that may extend to taking on its current delivery partners like FedEx and the United Parcel Service.

Seattle-based e-commerce juggernaut Amazon filed an application with the Shanghai Shipping Exchange last year that would allow its Chinese subsidiary, Beijing Century Joyo Courier Service, to serve as a shipping broker to countries in Europe, Japan and the United States.

A broker takes care of cargo and customs issues on behalf of merchants so make sure goods reach their final destination.

Amazon submitted a similar application to the US Federal Maritime Commission in November, allowing it to serve as a middleman for ocean freight services to other US-based companies that wish to export to other countries.

These moves suggest the company is one step closer to becoming a transnational logistics and fulfilment hub, as outlined in a 2013 proposal to senior executives at the company, Bloomberg reported.

Although Amazon deals with e-commerce, it does not hold its own inventory, similar to Chinese online retailer JD.com. Amazon largely taps merchants who wish to sell their products on its own platform.

Merchants can choose to list their products and sell to customers directly from the site, or ship their goods to Amazon, which then fulfils orders on their behalf.

By serving as a middleman in ocean freight, Amazon can tap the growing e-commerce cross-border market in China and the US by consolidating large volumes of cargo from merchants there.

“The licenses that Amazon have received not only strengthens its own position as a fulfilment channel for its own cross border trade, but also allows it to act as a potential competitor to the likes of DHL, Fedex and UPS in delivery services,” said Michael Yeo, analyst at market research firm IDC.

Amazon’s strategy in logistics is similar to that of its cloud computing business unit, Amazon Web Services. AWS was launched with the aim of fulfilling Amazon’s cloud computing needs but has since expanded into providing cloud services for other companies.

“Much like how Amazon Web Services now provides cloud services to others, we can assume that Amazon has larger plans for its logistics services than simply for goods that are purchased directly on Amazon,” said Yeo.

Amazon’s logistics strategy puts it head-to-head with Alibaba Group, which has also been aggressively expanding its logistics subsidiary Cainiao.

Cainiao has struck partnerships with domestic and international logistics partners such as Singapore’s SingPost and the United States Postal Service for its cross-border logistics solutions.

Meanwhile, Alibaba’s Tmall leads the retail e-commerce sector in China, wielding 58.6 per cent market share in the first quarter of 2015, according to data by iResearch.

In contrast, Amazon China only held 1.1 per cent of the market, despite having its hand in the game since 2004, four years ahead of Alibaba’s Tmall launch.

Doug Gurr, president of Amazon China, said the company was chasing areas where it has “unique competitive advantages” in satisfying local appetites for imported products.

“We want to help Chinese customers gain easy access to high quality and authentic international products at fair prices around the world … and help sellers from China to grow their business globally,” he said.